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Buyer Groups

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Author Info
G. Frank Mathewson
Ralph A. Winter

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Abstract

When does it pay a coalition of buyers and a coalition of sellers to by-pass a noncooperative market outcome by negotiating an alternative contract? Should these collective contracts be allowed? This paper investigates one source of the incentive for collective contracting: the failure of monopolistically competitive markets to achieve the optimal trade-off between lower costs and greater variety or availability of products. A collective contract benefits buyers inside the coalition but imposes a negative externality on buyers outside the coalition, who face higher prices and lower availability when the contract is allowed. We analyze the conditions under which the collective contracts increase total welfare. We suggest that the model represents one component of the incentives for "managed competition" in health care markets.

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File URL: http://repec.economics.utoronto.ca/files/UT-ECIPA-RWINTER-96-01.ps
File Format: application/postscript
File Function: MainText
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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number rwinter-96-01.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 38 pages
Date of creation: 11 Aug 1995
Date of revision:
Handle: RePEc:tor:tecipa:rwinter-96-01

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Postal: 150 St. George Street, Toronto, Ontario
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Related research
Keywords: buyer groups; monopolistic competition; managed care; preferred provider organizations;

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Find related papers by JEL classification:
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring. [Downloadable!] (restricted)
  2. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer, vol. 13(1), pages 57-84, April. [Downloadable!] (restricted)
  2. Mattoo, Aaditya, 1999. "Can no antitrust policy be better than some antitrust policy?," Policy Research Working Paper Series 2191, The World Bank. [Downloadable!]
  3. Roman Inderst & Tommaso M. Valletti, 2008. "Buyer Power and the “Waterbed Effect”," CEIS Research Paper 107, Tor Vergata University, CEIS, revised 10 Jul 2008. [Downloadable!]
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